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Vaughn Palmer: Moody’s a fan of B.C. government's financial management, for now

Vancouver Sun columnist Vaughn Palmer.

Photograph by: Diana Nethercott
, Special to The Sun

VICTORIA — The B.C. Liberals found several things to boast about this week in the latest credit opinion from Moody’s Investors Service, one of the leading agencies to advise investors on the risk of lending money to governments and other entities.

The opinion, released Thursday, reaffirmed a triple-A rating for B.C. — the highest available — and a testament, so said Moody’s, of “the province’s track record of prudent fiscal planning and of managing fiscal pressures effectively.”

There was also this tribute to the province’s standard-issue fiscal plans, tabled in the legislature with the annual budget.

“In recent years, the province’s multi-year fiscal plans have been based on prudent assumptions and practices, such as the use of forecast allowances and contingencies to help insure against unforeseen in-year fiscal developments. Fiscal management measures are supported by comprehensive and transparent fiscal reporting that is typical of governments in advanced industrial economies.”

The B.C. debt burden has been growing since the wildly off-the-mark budget tabled before the last election. “Nevertheless,” Moody’s went on to say, “the province’s debt burden remains manageable given its credit strengths and high debt affordability, given the current low interest rate environment.”

Other factors sustaining the province at the top of the credit-rating heap were the Liberals’ “significant debt reduction efforts” in the middle of the past decade, which left B.C. “in a relatively stronger position to face recently record and anticipated deficits and increases in the debt burden.”

For all the pluses, the agency also highlighted a minus, first flagged last December, when it changed the B.C. credit outlook from “stable” to “negative.”

A change in outlook can herald an eventual downgrade in the credit rating itself if the offending jurisdiction doesn’t assuage the concerns addressed by the agency. This week’s update reiterated those raised in last year’s cautionary report:

“The negative outlook reflects the risks to the province’s ability to reverse the recent accumulation in debt, given a softened economic outlook, weaker commodity prices and continued expense pressures.”

Most particularly, there was the continuing downward revision in natural resource revenues, “primarily due to continued depressed natural gas prices and lower production.”

Another concern, relevant to the coming election, was whether the B.C. government can continue to manage finances to the same standard that prompted the agency to award that triple-A credit rating in the first place.

“B.C. has a strong track record of meeting budget targets and will need to maintain this resolve and discipline to ensure that deficits arising from the recent economic downturn remain temporary and do not impair the province’s finances on a permanent basis, particularly given the softened economic outlook, “ observed Moody’s.

“A return to a stable outlook on the rating would require an achievement of the province’s fiscal targets that stabilizes and ultimately reverses the recent accumulation in debt over the medium term.”

That bit about “meeting budget targets” is a reference to the specifics laid out in the budget and three-year fiscal plan tabled in the provincial legislature by the B.C. Liberals back in February.

It called for government to contain spending growth to an average of 1.7 per cent annually over the three years, via (as Moody’s noted) “continued restraint” in the public sector wage bill and pursuit of “efficiencies” and “restructuring” across most programs, health care included.

Combined with the projected returns from the sale of government assets — “there are risks with respect to the timing and proceeds,” warned Moody’s — the Liberals forecast successive surpluses of $197 million, $211 million and $460 million over the three years.

But this week the New Democrats denounced those projections as unattainable. They instead called for significantly larger spending increases, discounted the asset sales down to zero, and projected successive deficits of $790 million, $847 million and $452 million over the three years.

The NDP numbers would appear to be a more likely guide to the fiscal future than the ones from the Liberals, given the current opinion polls.

But that, in turn, invokes another cautionary passage in the Moody’s report: “Should the government’s resolve to achieve fiscal redress and/or if the province is unable to stabilize and then reverse the accumulation in debt, then downward rating pressure could emerge.”

The New Democrats rightly challenged the credibility of the Liberal budget and fiscal plan for the three financial years starting April 1. But the May 14 election falls just six weeks into those three years.

If the New Democrats win, they’d be given a free hand to scrap the Liberal plan and manage provincial finances — increase spending, change the revenue targets, add to the deficit, run up the debt — as they see fit.

But next time Moody’s and the other agencies issue an opinion on the province’s credit rating, they would be passing judgment on the NDP’s financial resolve, not that of the ousted Liberals.

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